PVR and INOX merger deal - Multiplex entertainment industry economics.

The multiplex industry in India is set for a massive structural change as the Inox and PVR deal is on the verge of finalization as per reports from major media houses. In this article, we look into the share prices of both INOX and PVR and try to guestimate the future prospects for investors and shareholders of PVR and INOX.

As per media reports, 10 shares of INOX would be swapped for 3 shares of PVR. The two companies would be branded as PVR INOX.



Stock Market Share Prices - Technical Analysis


Image: INOX (left) and PVR (right)


Both PVR and INOX shares are having a strong relative strength against Nifty. Both the share prices have reached their November 2021 highs. We may expect the share prices to keep rising given the news of this deal. One can definitely invest in these stocks.


Nifty Media industry is turning out to be a major outperforming sector from March onwards and a large part of it could be attributed to the bullish price action of PVR and INOX. Given the strong relative strength of this sector, one should definitely invest in stocks from this sector and PVR and INOX could be potentially decent bets given the merger.


Image: Nifty Media


Technically the Nifty Media index looks good in terms of price action with up-trending relative strength and price action along with price above major exponential moving averages.


Industry Economic Analysis

Source: Statista, data from 2019.


The multiplex industry in India is an oligopoly type of market that is led by PVR followed by INOX. A merger between the 2 leading players could completely change the market share structure of an oligopoly market like this. Clearly, INOX and PVR would be the dominant player and customers could expect very healthy competition in not just terms of price but also service quality, product differentiation, and innovation.


Having the majority of market share could lead to some bit of monopoly power for the brand which could impact the price discrimination faced by customers, however, all in all, it is good for both INOX and PVR as they would be able to be better profitable as they do not need to compete with each other as it is said in game theory. Previously both INOX and PVR would have charged a low price to gain more market share, as per the conventional game theory notion. However, through a merger, they now would be able to charge High prices and that could potentially improve their balance sheet profits.

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